Buy, hold or sell? Self-directed investors are often unsure about how to manage a security that has increased or decreased in value. Selling a portfolio position can sometimes feel more perilous than simply buying or holding a position. Factors such as timing the sale incorrectly or dealing with capital gains after selling shares or exchange-traded funds (ETFs) in a taxable account add to the complexity. Compared to buying, there is usually less information available to guide investors on what to consider before selling an investment. This article aims to address these gaps. Let’s take a look at some of the issues to consider when selling stocks or ETFs.
When to sell stocks or ETFs?
Choosing when to sell an investment—or choosing not to sell—can be complicated. There is no one-size-fits-all solution. The answer to the question typically depends on your investment strategy, risk tolerance, time horizon, and the investment products in your portfolio.
When market conditions start changing, an investor with a diversified portfolio that includes ETFs and Mutual Funds will have a different outlook on selling than an investor holding several individual stocks.
One reason driving the difference is that the risk associated with holding individual securities is generally more significant. Market upturns or downturns can have a bigger impact on individual stocks than on ETFs. Since ETFs are made up of a pool of different securities, upward or downward market spikes are typically spread out more evenly across multiple holdings, tempering losses as well as gains.
In the following sections, we look at some of the reasons why self-directed investors might consider selling the stocks or ETFs they hold in their portfolios.
Rebalance a portfolio
Over time, an asset allocation—the mix of stocks and ETFs in a portfolio across different sectors, classes and geographies—can become unbalanced. As certain investments increase in value faster than others, investors can work towards spreading their risk more evenly.
For example, a balanced portfolio could drift and become a growth portfolio if the equity portion experiences more growth. If the investment objectives and risk tolerance haven’t changed, it might be time to reinvest in a way that returns the portfolio towards a more balanced allocation of assets.
In this instance, a portfolio rebalancing strategy might involve selling a portion of the equity and reallocating the funds toward fixed-income assets, thereby bringing the portfolio back to its desired asset allocation. An investor can do this on a regular basis—quarterly or annually.
Those looking for a turn-key solution might consider adding Asset Allocation ETFs to their portfolio. These are ETFs designed to maintain a balanced asset mix across sectors, classes and geographies. They can serve as an all-in-one solution, providing managed and diversified access to the broader market while ensuring rebalancing of the portfolio.
Portfolio diversification
Portfolio diversification is another strategy that might involve selling assets. It is a way to manage risk that minimizes the impact of individual investments in an investor's portfolio. It helps them determine whether they should invest in new securities or buy more, sell, or hold existing ones.
Over time, specific holdings or sectors in an investment portfolio can become too concentrated. This can occur gradually or over a short timeframe. In some cases, investors may have purchased stocks or ETFs that are in the same sector without realizing it because:
- The security met their investing criteria, and they invested heavily
- They accumulated many shares in a single company as a result of their employee stock purchase plan
Regardless of the underlying cause, every investor needs to be aware that a negative company or sector event can cause a significant decrease in the value of their portfolio. To limit the potential negative impacts of a downturn, an investor might want to reduce the percentage of holdings in that stock or sector.
Investors who sell some of these holdings and invest elsewhere to diversify lower the risk to their portfolio. However, on the flip side, there is always the possibility that the sold stock outperforms the replacement investment.

Looking to rebalance your portfolio or make changes to it? Discover Wealthscope, a simple and intuitive investment analysis tool available on the NBDB platform.
Access funds
We may look to our investment account as a source of funds in times of need, but most self-directed investors should consider other available options. At the very least, they should plan ahead before selling securities in their portfolio.
In the case of a Registered Retirement Income Fund (RRIF) minimum payment, investors can use the required annual withdrawal to pay for expenses. If the funds aren’t needed, investors have the option of making a withdrawal in kind and transferring those shares into another investment account, such as a Tax-Free Savings Account (TFSA) or a non-registered brokerage account.
The same applies to a Registered Education Savings Plan (RESP), where the funds are needed within a shorter timeframe and are intended to cover tuition and related expenses. Unless other financial sources are available, any decisions to sell should be driven by obligations tied to the cost of education.
In other similar cases, investors should consider the real risk of running out of funds or not having enough to withdraw. To minimize the risk, investors should estimate withdrawals in advance and have a plan to ensure the necessary funds are available.
Ensuring sufficient funds are available might involve increasing the portion held in cash and fixed income. Unless you can afford to be wrong, selling early and securing the funds is a safer option than holding out for potential further appreciation in the security’s share price.
A stock’s outlook has changed
Most investors dedicate time and effort to researching a security before adding one to their portfolio. Perhaps the company is at the forefront of new a technology or a market leader in an existing sector. An investor may have consulted detailed research reports from National Bank Financial or Morningstar on NBDB’s platform, reviewed financial statements, and crunched some numbers to see if the security meets their criteria as a Value, Quality or other type of investment.
Whatever strategy drives the purchase, as investors, our expectation and hope is that the asset will make gains and grow over the long term. Unfortunately, things don’t always work according to plan. There are numerous examples of high-flying companies that have failed or been dethroned by competitors.
It is important to remember that even good companies sometimes make mistakes. One or two bad quarters aren’t necessarily an indication of an investment that has gone sour. On the other hand, if the company’s business outlook has changed significantly or its financial health has declined due to consistent and ongoing missed opportunities and poor execution, it may be time to reassess the asset’s fundamentals. If the security does not look promising on review, it might be a good time to sell.
Although research reports will seldom provide a timely sell rating an investor can detect changes by consulting previous research reports and not just rely upon the most up to date one. Look for rating changes from outperform to sector perform, repeated price target cuts and decreasing estimated earnings per share (EPS) or other such metrics.
Discover the NBDB research section
Take advantage of better investment opportunities
There may come a time when investors with a buy-and-hold mindset, who are investing in stocks and ETFs for the long term, want to purchase a new security but lack the necessary funds. To make the purchase, they may decide to sell some of their existing holdings to buy new stocks or ETFs.
If the new investment opportunity has better prospects and helps diversify their portfolio, investors may find it easy to sell shares from existing holdings, particularly if those existing securities have been underperforming.
Nevertheless, before making the transaction, it is always important to compare potential gains from the new stock purchase with the existing holdings that will be put up for sale. If the new security’s outlook is better, it might make sense to sell the current position and buy the new one.
Another strategy for an investor willing to take a more short-term approach and with some cash in hand is to buy a call option on the prospective new security if the security is options-eligible.
A call option lets investors speculate on the direction of the stock. This can be done for a fraction of the cost of buying the underlying security outright. The call option gives the buyer the right but not the obligation to buy the underlying stock at a fixed price if it meets or exceeds the strike price.
Additionally, when the price of the underlying security increases, the call buyer can also sell the option before maturity. This allows them to profit from the higher premium that other buyers are willing to pay to buy the call option.
Tax loss selling
Tax loss selling should rarely be at the top of the list when it comes to reasons to sell a security. A rare exception might be if an investment is held in a non-registered account. For example, an investor might decide to sell a stock that has a deteriorating business outlook. This would result in a capital loss that can offset a capital gain from the sale of a profitable stock or ETF they hold in their portfolio.
Conclusion
Trying to determine the optimal time to sell shares is a reminder of the complex variables that can influence investment decisions. There is no one-size-fits-all solution. For self-directed investors, answering the question depends on your investment strategy, risk tolerance, time horizon, and the investment products already held in your portfolio.
If you’ve decided to sell, buy, or hold, it’s important to remember that investing always carries some risks. Remember to do your research, take advantage of available investment knowledge resources on the NBDB Trading Central Platform, and invest thoughtfully to make your money grow!
Further reading
Here are some articles and tools available on the NBDB website that you can consult to learn more and guide you on your self-directed investing journey:
- How to start investing: A guide for beginners
- Tax Loss Selling: What you need to know
- What is value investing?
- RESP: How does it work?
for a comprehensive assessment of your portfolio.
Key Takeaways
- Getting the timing right on when to sell or hold on to an investment is not a straightforward decision. There is no one-size-fits-all solution.
- Selling assets typically depends on your investment strategy, risk tolerance, time horizon, and the investment products in your portfolio.
- Portfolio diversification and rebalancing, accessing funds, changing outlook, and tax loss harvesting typically drive selling decisions.
- Before selling any existing holdings to buy new securities, investors should compare potential gains carefully.
- An alternative strategy might involve buying call options on an underlying security to capitalize on share price growth.